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Gold price falls as traders brace for US PCE data

Posted on by Vaseline
Gold price falls as traders brace for US PCE data

  • Gold prices fall early in the Asian session on Friday.
  • Stronger US GDP growth is pushing gold prices lower, but rising expectations of a Federal Reserve rate cut could help limit losses.
  • All eyes are on the US PCE inflation figures, due out later on Friday.

Gold price (XAU/USD) loses momentum amid firmer US dollar (USD) on Friday. Upbeat US growth report and initial jobless claims have pushed back expectations of a deeper rate cut by the US Federal Reserve (Fed) in September, weighing on non-yielding gold. However, escalating geopolitical tensions in the Middle East and the Russia-Ukraine war could boost safe-haven demand, favoring the yellow metal.

Investors will be closely monitoring US inflation data for insight into the potential magnitude of the Fed’s rate cut. The core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation, is expected to post a 2.7% annualized increase in July, up from 2.6% in June. A softer-than-expected PCE reading could prompt the Fed to initiate a cycle of rate cuts, providing a tailwind for XAU/USD.

Daily Market Movements Review: Gold Price Loses Ground, Fed Rate Cut Bets Confirmed Could Limit Downtrend

  • Russia has carried out multiple airstrikes on Ukraine this week, costing Moscow an estimated £1.1bn. Meanwhile, Ukraine has warned it is keeping a close eye on its border with Belarus following a recent troop build-up there, Sky News reports.
  • U.S. gross domestic product (GDP) grew at an annual rate of 3.0% in the second quarter (Q2), the Department of Commerce reported in its second estimate released Thursday, stronger than estimates and the first estimate of 2.8%.
  • The number of weekly initial claims for unemployment benefits in the US for the week ending August 24 fell to 231,000 from 233,000 the previous week. This is lower than the market consensus of 232,000.
  • Atlanta Federal Reserve Chairman Raphael Bostic said Thursday it may be “time to continue” cutting rates as inflation continues to ease and the unemployment rate rises faster than he had anticipated. But he wants to see more evidence from the monthly jobs report and two inflation reports expected before the Fed’s next meeting.
  • According to the CME FedWatch Tool, markets are now pricing in about 66% of a 25 basis point (bps) rate cut in September, but the probability of a larger rate cut stands at 34%, down from 36.5% before the US GDP figures.

Technical Analysis: Gold Price Maintains Bullish Vibe in Long Term

Gold prices are falling on the day. The precious metal remains confined to a five-month old ascending channel upper boundary and an all-time high. However, the overall outlook for the precious metal is strongly in favor of the bulls on the daily timeframe, with the price remaining above the important 100-day exponential moving average (EMA). Moreover, the 14-day Relative Strength Index (RSI) is around 60.75, indicating potential bullish momentum in the near-term.

The key resistance level for the yellow metal is seen near the confluence of the all-time high and the upper boundary of the trend channel at $2,530. Further north, the next hurdle emerges at the psychological point of $2,600.

On the other hand, the initial downside target for XAU/USD could be the round figure of $2,500. A decisive break below this level could expose further downside potential towards $2,432 (the August 15 low) en route to $2,382 (100-day EMA).

Frequently Asked Questions About Gold

Gold has played an important role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its luster and use in jewelry, the precious metal is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and depreciating currencies, as it is not dependent on any specific issuer or government.

Central banks are the largest holders of gold. To support their currencies during turbulent times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and its currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

Gold has an inverse correlation with the US dollar and US Treasuries, both of which are important reserve and safe haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets tend to favor the precious metal.

The price can change due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly send the price of gold soaring due to its safe-haven status. As a low-yielding asset, gold tends to rise at lower interest rates, while a higher cost of money tends to weigh on the yellow metal. However, most movements depend on how the US dollar (USD) behaves, since the asset is priced in dollars (XAU/USD). A strong dollar tends to keep the price of gold in check, while a weaker dollar is likely to push the gold price higher.

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